Wednesday, January 23, 2008

And the Good News?

Here's the bad news:

In reality, the crisis is both a credit crunch and the bursting of the housing bubble. Wall Street is in terrible shape and Main Street is about to be in terrible shape. And there's not a whole lot that can be done about either of these problems -- because they are the results of years of lax credit standards, get-rich-quick schemes, wild speculation on Wall Street and in the housing market, and gross irresponsibility by the Fed, the Treasury and the Comptroller of the Currency

Other than that, things are just dandy.

But in a somewhat nasty analogy, the author derides the "rate-cut" scheme:

The problem is, people have different views about what's going wrong. Wall Street sees it as a credit crisis -- a mess that seems never to reach bottom because nobody on Wall Street has any idea how many bad loans are out there. Therefore, nobody knows how big the losses are likely to be when the bottom is finally reached. And precisely because nobody knows, nobody wants to lend any more money. A rate cut won't change this. It's like offering a 10-pound lobster to someone so constipated he can't take in another mouthful.

The discount and Fed Funds rates are insignificant--totally meaningless--to ARM borrowers, and to most typical-mortgage holders. And they are almost meaningless to ordinary consumer and/or business borrowers.

They ARE meaningful to stock-owners; typically, when rates go down, equities rise. Maybe that will be the result this time.

Maybe not.

And sending $1500/taxpaying couple out in July? What for??

It's eye candy which saddles our children with Federal debt.

What a bunch of losers...

HT: Dreher

2 comments:

Disgruntled Car Salesman said...

Very nice analysis. I like Cavuto's take yesterday. "In an economy with 5% unemployment and 3% growth, I would like to see what they do when we have real problems."

3rd way said...

I agree with Daddio and Cavuto.

The rate cut was simply to prevent the bottom from falling out of the market yesterday. If they do that at every sign of trouble in the coming months we are going to end up like Japan at the bottom of their recession. The market stagnant, our economy stagnant and the Fed utterly helpless with their rates at zero.